My client has 10% shares with full rights so already qualifies for B A D Relief. The company is being disposed of and the other share holder wants to transfer more shares from him to his partner so that they can both take advantage of the £1m limits. I see that 5% must have been held for 2 years, which is the case here, but does anyone know if HMRC would enquire on Due Dilligence if share are transferred within a couple of months of sale completion ?
Replies (14)
Please login or register to join the discussion.
does anyone know if HMRC would enquire on Due Dilligence if share are transferred within a couple of months of sale completion ?
Not sure what you mean. Whether HMRC enquire or not is surely irrelevant. Either the facts support the availability of the relief or they don't.
Have I misunderstood your point?
The point of transferring more shares before sale is so that this individual (who is also the other shareholders life partner) will receive more from the sale and potentially be able to claim the relief up to the life time limit, thereby also reducing the other shareholders CGT not covered by the relief.
When you say “life partner”, is that person entitled to the benefit of the inter-spouse/civil partner CGT exemption?
Even if the exmeption were not available if BADR is available then the company must, by definition, be a trading company and so gift holdver relief would presumably be available.
Pre-sale transfer of shares is common tax planning. Depending on what happens to the proceeds, there is always the possibility that HMRC could attempt to apply Ramsay but I have yet to see this applied in practice.
Even if the exmeption were not available if BADR is available then the company must, by definition, be a trading company and so gift holdver relief would presumably be available.
HOR combined with gift and gift back might not need Ramsay.
Why not:
1) transfer the offending shares,
2) pay a small dividend in the new proportions to show it's not a sham, and then
3) sell the company.
Real transactions have real consequences, hence (2).
It seems that the client has only 10% of the share capital, so may not be in a position to influence the payment of dividends. Which leads to a further, non-tax, question:
Do the Articles/shareholder agreement permit such a transfer?
Have you addressed the ERS implications?
(If there are already lawyers involved then you could ask for a tax lawyer to have a (second) look given the amounts involved.)
It's a point worth making, to ensure that all bases are covered, but I wouldn't imagine there to be any in this case.